Payroll Tax Survey Sees 7 in 10 People Considering Spending Cuts

Feb. 21 (Bloomberg) -- The U.S. payroll tax increase that
took effect this year may cause seven out of 10 Americans to
curtail spending, especially on big-ticket items such as cars,
according to a survey by the National Retail Federation.

About 73 percent of consumers said their spending plans are
taking a hit, the Washington-based trade group said, citing a
survey of 5,185 people conducted by BIGinsight from Feb. 5 to
Feb. 13. More than a third said they’ll reduce how much they
dine out and 25 percent said they plan to cut back on small
luxuries such as manicures and trips to coffee shops.

Almost half of consumers who describe themselves as
“greatly impacted” by the change said they’ll delay major
purchases of items such as cars, televisions and furniture.

The Dec. 31 expiration of a payroll-tax break translates to
$15 a week more in Social Security taxes for a person making
$40,000 a year. The change, combined with lingering unemployment
and higher fuel prices, has influenced consumer spending. Wal-Mart Stores Inc. executives last week cited the tax holiday’s
end, along with delayed tax returns, for the worst monthly sales
start in seven years.

“A smaller paycheck due to the fiscal cliff deal early
last month, higher gas prices, low consumer confidence and
ongoing uncertainty about our nation’s fiscal health is
negatively impacting consumers and businesses across the
country,” Matthew Shay, chief executive officer of Washington-based NRF, said in a statement.

Discount Stores

In order to build the middle class, the U.S. must remove
hurdles “that prevent consumers from investing their hard
earned money back into our nation’s economy,” he said.

Americans began paying 2 percentage points more in Social
Security taxes on their first $113,700 in wages on Dec. 31.
Consumers making less than $50,000 a year won’t spend as much on
groceries and boost shopping at discount stores, compared with
shoppers above that threshold, according to the survey.

Wal-Mart, the world’s largest retailer, discussed the
impact on its business in internal e-mails obtained by Bloomberg
News and reported Feb. 15. What the Bentonville, Arkansas-based
company is seeing is likely to ring true for other retailers
targeting “low-end” consumers, David Strasser, an analyst with
Janney Montgomery Scott LLC in New York, has said.